BUSINESS ESTABLISHMENT MODELS AND PROCEDURE FOR FOREIGN INVESTORS IN TURKEY
By ARZU ONGUR ERGAN
The main aim of this article is to introduce business establishment models and procedure in Turkey to foreign direct investors who has intention of doing business in Turkey. It is a fact that the establishment requirements and conditions are crucial for any investors in order to shape their business activities in a most convenient manner. There are three types of investment methods which are commonly used by foreign investors during their business activities in Turkey.
I.SETTING UP A LIMITED LIABILITY COMPANY: (LLC)
FOUNDING SHARE HOLDERS
Minimum 2 Maximum 50
In Total Minimum 5.000 TL =3.340 USA $
PURPOSE OF ACTIVITIES
Turkish Commercial Code
Independent Turkish Company
SHARE HOLDER LIABILITY
Limited with the share capital except for tax liabilities
Partners Assembly meeting
TRANSFER OF SHARES
Corporation tax 20% (2010)
In Turkish currency only to Turkish entities. Indexation of TL amount on the invoice to foreign currency allowed
The definition of a limited liability company is stipulated in Article 503 of Turkish Commercial Law (hereinafter TCL). According to the definition contained in the Article: Limited Liability Company is a company established by two or more persons, real or legal, under a commercial title, the liability of the partners of which is limited with the capital they have undertaken to provide and the capital stock of which is certain.
According to Article 504 of TCL, the number of partners in a limited liability company cannot be less than two and more than fifty. The partners can be both Turkish and/or foreigners real persons and legal entities.
According to Article 506 of TCL, some aspects must be expressly stated in the company contract. These aspects are as in the followings:
1. The title and the headquarters of the company;
2. The subject of the business;
3. Capital stock together with amounts of capital that each partner undertakes to provide; (minimum in total 5.000 TL= 3.340 USA $)
4. The mode of the announcements to be done by the company;
5. The term of the company.
The registry and announcement stages of limited partnerships must be in the form and contain the aspects specified by the law.
b)Registry and Announcement
According to Article 511 of TCL: A limited liability company which is deemed to bear the legal conditions after the examination is registered to trade registry and announced should have the followings:
1. Date of the contract;
2. Commercial title and headquarters of the company;
3. Subject of business and the term of the company;
4. Name and surname, place of residence and nationality of each of the partners and the name or commercial title along with its headquarters if a legal person is concerned;
5. Capital stock together with amounts of capital that each partner undertakes to provide;
6. The amount of real capital and financial values taken over, and how these shall be set-off to the subscribed capital;
7. Names and surnames, addresses of residence and nationalities of the managers;;
8. How the company is represented;
9. How company announcements are made.
The documents required for new establishment registry of a limited liability company are as follows:
C O P Y
L İ S T O F R E Q U I R E D D O C U M E N T S
Letter (it is signed by company manager(s), and the documents enclosed to the letter are stated.)
Establishment notification form;
Copies of the Contract,
List of authorized signatures signed under the title (certified by Notary Public)
Letter of Undertaking,
Bank Statement or EFT receipt indicating that four per-myriad of the capital is deposited to account no. 53837615016 of Competition Boards account
Photographed copies of ID cards/passports of the partners (approved by the quarter-headman or notary public)
If real capital is provided, the related court order and a letter from the official authority stating that there is no restrictions on the real capital
If the foreign nationality partner is a legal person, the original operation document and its notary public certified translation,
If the foreign nationality partner is a real person notary public certified copy of his/her passport,
The work and residence permit document for foreign partner residing in Turkey (certified by relevant authorities)
If there is a cash paid portion of the capital, the bank statement reflecting such payment,
Notary public certified copy of incentive documents for incentive investments,
Original registry fee receipt,
Consent of the legal representatives in case there is a under-age partner is involved,
d)Other Issues regarding Limited Liability Companies
The partnership share is different from capital stock share. Capital stock share defines the nominal value of the capital amount of one partner in the capital stock of the limited liability company. The capital stock of the limited liability company is divided to the number of the partners. Partnership share, however, is the entire rights and obligations of a partner in a limited liability company. The amount of the capital determines the partnership share of the partner. Voting right of each partner is determined by their capital stock share unless there is a provision on the contrary in the partnership contract.
The partnership share can be transferred but cannot be affiliated to commercial paper. With the use of initial partnership contract, the transfer of a partnership share can be concluded to more severe conditions than foreseen by Commercial Law, or even be completely restricted.
A written transfer agreement which expressly states the will to transfer and take over is concluded for the transfer of the share. Moreover, the signatures should be certified by Notary Public. Additionally, the transfer of the share should be notified to the limited partnership. The purpose of this notification is to determine whether the partners are consenting to the transfer with the required quorum and to ensure that the record is kept in the share ledger in case the consent is given.
For the transfer of the share to be valid against limited partnership, it should be recorded in share ledger and in order for the record to be kept the partners should give consent with an aggravated quorum for the transfer.
The consent of the partners is given as a resolution of the shareholders assembly. At least three fourths of the partners should consent to the transfer and these partners should have at least three fourths of the real capital unless it is aggravated by the company contract. In case the partners consent to the transfer, this issue is recorded in the share ledger.
As a rule for a decision to be made by a limited partnership, partners who represent more than at least half of the paid capital should vote in favor of the subject at hand. Apart from this there are cases in which the consensus or aggravated quorum of the partners is sought.
The management and the representation the partnership belongs to the managers. There is a regulation stipulated in Article 540 of TCL. According to this article: Unless otherwise is agreed, the partners are collectively entitled and obligated to manage company affairs and represent the company.
The management and representation of the company can be assigned to one or more of the partners through company contract or resolution of the general assembly.
The partners, who have participated to the company after its establishment, are not entitled or obligated to manage and represent the company unless there is a resolution of the general assembly stating otherwise.
In case there is a legal entity within the representatives of the limited liability company only the real person who has undertaken the representation and management of the limited liability company on the behalf of that legal entity is registered and announced as the representative of the limited liability company.
The provisions applied to the corporation auditors are also applied for the auditors of limited partnerships in which the number of partners exceeds twenty. In limited liability companies, which have twenty or less partners, auditing right that belongs to partners of ordinary partnership is granted to partners who do not bear the title of manager. Although these people are not authorized for management, they are entitled to receive information about the course of partnership businesses, examine the partnership ledger and documents.
II.SETTING UP A BRANCH OFFICE
Branch offices are stipulated under the TCL Article 50 and following. Foreign Companies can open branches in Turkey. The removal of the pre-setup approval has made it easier for foreign companies to open branches in Turkey.
Ministry of Industry and Commerce
FOUNDING SHARE HOLDERS
PURPOSE OF ACTIVITIES
Main companies activities
Turkish Commercial Code
Liability of parent company
At least one branch director
Branch directors power of attorney
TRANSFER OF SHARES
Non residence status liability only on Turkish sourced income
In Turkish currency made on to Turkish entities, . Indexation of TL amount on the invoice to foreign currency allowed
BRANCH OPENING PROCEDURE
A foreign company needs to grant an approval form Ministry of Industry and Trade to open a branch office. The Ministry of Industry and Trade is the permit issuing authority for opening a branch of a company based outside Turkey. Branch opening, changes to be made in the representative, title, business type, address and capital of the company, closing down, or opening secondary branches are subject to the approval by the Ministry.
An application to open a branch must be submitted to the Ministry signed by the authorized representative of the Company. The application and its enclosures should be posted to the Ministry Directorate. The application must include:
BRANCH OPENING DOCUMENTARY REQUIREMENT
DOCUMENTS REQUIRED FOR MINISTRY OF INDUSTRY AND TRADE PERMIT
Company's written confirmation of the decision to open a Branch
DOCUMENTS REQUIRED BY THE TRADE REGISTRY OFFICE
An application in the Turkish language signed by an authorized person
An original copy of the company's Articles of Association
Branch-opening permit obtained from the Ministry of Industry and Trade
Establishment and Current Status Documents showing the registration and current legal status of the Company
2 notarized and legalized copies of the Power of Attorney
A Power of Attorney drawn by the Company in favor of its resident representative, assigning full representation and accountability
Turkish document ' Müzeyyel Beyanname ve ilanı (Attached declaration and publication)
These documents must be certified and legalized (apostilled) in the NL
If the branch representative is a Turkish national, a notarized copy of his ID card, if not, a notarized copy of the passport of the foreign authorized representative
Company signature authority showing t he representative's signature specimen and title
Letter of Commitment in accordance with Article 29 of the Trade Registry Regulation
A Chamber Registry Declaration Form, obtained from Trade Registry Office
FORMS TO COMPLETE
All documents and forms required by the Ministry of Industry and Trade must be submitted to the Directorate General of Domestic Trade. Document and forms required by the Trade Registry Office should be submitted to the Trade Registry Office for the place of the Branch.
III. SETTING UP A LIASION OFFICE
Companies based abroad can promote their business by opening Liaison Offices in Turkey. The main difference between a Branch and a Liaison Office is that the Liaison Offices cannot carry out any activity through their offices in Turkey to generate revenue. Another difference is that the expenditures of a liaison office must be met entirely from foreign currency brought in from abroad. Liaison Office permits are granted for a period up to three years, and extension applications must be made at the end of each period or permit.
The permit issuing authority for opening a Liaison Office in Turkey is the Directorate General of Foreign Investments, Turkish Treasury. If the application procedure is in order and documents completed, the permit will be issued within five days.
SETTING UP PROCEDURE
The documents and forms listed below must be submitted to the permit issuing authority.
Original copy of Certificate of Activity showing the number of employees and the annual expenditure estimate
Operational report or balance sheet and income statement of the main company
The original copy of Power of Authority issued to the representative authorized to manage the office
The original copy of Power of Attorney issued to the person authorized to carry out the establishment transactions of the liaison office
These documents must be validated and legalized in the homeland.
AFTER ESTABLISHMENT OBLIGATIONS
- Following the obtaining of the permit, the Liaison Office must register with the local tax office. Within one month from the date of establishment, the office must submit a copy of the Tax Office Registration Document to the Directorate General.
- Forms and documents must be supplied to the Directorate General each year about their activities (Data Form for Liaison Office Activities) and all expenditures have been paid with the transferred foreign currency.
- In case of winding up of the Liaison Office, "Termination and Examination of Business Note" issued by the tax office must be submitted to the Directorate.
 POROY/ TEKINALP/ ÇAMOĞLU; Ortaklıklar ve Kooperatif Hukuku, 9. Bası, Istanbul 2003, s. 886-887.
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